DEFINITION of Authorized Amount
Authorized amount is a sum that a merchant transmits to a credit or debit card processor to make sure the customer has the funds required to make a purchase. The authorized amount is usually identical to the cost of the goods or services charged to a credit or debit card for a single transaction, but in some cases, it is a small amount, such as $1, or an estimated amount, such as $100, that confirms the card is valid or sufficient funds are available.
BREAKING DOWN Authorized Amount
To obtain authorization for a purchase, the merchant must get the consumer’s approval and then confirm with the credit or debit card issuer that the consumer has that amount available under his or her available credit (for a credit card purchase) or checking account balance (for a debit card purchase). The authorized amount is what the card holder has agreed to pay and the card issuer has confirmed is available for use.
For example, say you go to the grocery store and buy a basketful of items totaling $55.08. You then swipe your credit card to pay for the transaction, and the transaction is approved. $55.08 is the authorized amount, or the amount you’ve agreed to pay and the amount your card issuer has confirmed is available. When you check your credit card balance later, you will see that the authorized amount has been subtracted from your available credit and added to your balance.
Other Ways Authorized Amounts Can Be Applied
Authorized amounts also apply to debit card purchases. In this case, the merchant gets authorization from your bank that you have enough money in the checking account linked to your debit card to pay for the purchase. As in the credit card scenario, when you look at your checking account balance, you’ll see the authorized amount deducted.
Sometimes the authorized amount will temporarily differ from the actual amount of your purchase. For example, if you use your credit card at a gas station, you might see an authorized amount of $1.00 in the pending transactions section of your credit card charges when you access your account online. Before allowing you to pump gas, the gas station authorizes your credit card for a small amount to make sure your card is valid. The $1.00 authorized amount will not appear on your statement, however; it will be replaced by the actual amount you spent on gas — say, $25. The same practice often occurs when you use your credit or debit card to check into a hotel, check out a rental car or pay for a purchase where a tip is expected and the final bill is estimated.